Yesterday's trading: Mighty miners dug out of hole

By Lauren Mills, Mail on Sunday Senior Financial Correspondent
Updated: 02:41 EDT, 11 July 2008

In early trading the fickle Footsie bounced on the back of better-than-expected news on US jobless claims.

But it wasn't long before dealing screens turned red leaving London's blue chip index 122.8 points lower at 5406.8.

Even the Bank of England's decision to hold interest rates at 5% was not enough to fight off the bears.

The Footsie may not officially be in bear market territory, but it is barely out of danger.

And with Wall Street down 47 points in early trading, there was little cheer from across the Atlantic as the day went on.

It was not quite all bad. The mighty miners proved once again that if anyone can dig themselves out of a hole, they can.

Buyers drilled into Eurasian Natural Resources Corp (ENRC) pushing the shares another 20p ahead to 1047p.

Investors believe a tie-up with rival Kazakhmys, down 32p to 1410p, may still be on the cards.

Which of the two mining giants would have the upper hand in any deal is something of a moot point.

Earlier this year it looked like copper miner Kazakhmys would be in the driving seat.

But then the markets for ENRC's iron ore and ferrochrome took off and the group's shares soared as a result.

ENRC's market value is around £13.6bn, compared to £6.4bn for Kazakhmys.

So it would appear that ENRC is back in control. This is not necessarily so.

The government of Kazakhstan, which has a significant stake in both companies, agreed to sell part of its holding in ENRC to Kazakhmys, indicating the copper miner might be on top.

The only certainty is that if a deal goes ahead the Kazakh government will be sure to play an important role in any combination.

Other miners firmly in the blue included Vedanta Resources, up 56p to 2007p after Citigroup reiterated its 'buy' rating on the stock.

Rio Tinto ended 64p dearer at 5480p, while BHP Billiton was 18p higher at 1728p and Antofagasta nudged up 3½p dearer to 579½p.

Miners left in the cold included Anglo American, down 119p to 2945p and Xstrata, 15p lower at 3825p.

There was no light at the end of the tunnel for Griffin Mining, down 1½p to 47p.

Investors seem to have missed the fact that the zinc and gold producer has around £45m in cash, equivalent to about 24p a share. It also has a profitable mine in China.

And, even with a fall in the price of zinc, it is making a profit of around £353 a ton.

So why are the shares, which peaked at 122p in April 2007, so depressed? The answer, it seems, lies with short sellers.

One dealer reckoned a 'big proportion' of short positions were creating a false market in Griffin's shares.

Whatever the reason for the current weakness, now might be a good time for predators to pounce. Canada's Ivanhoe Mines made an approach last year, but was rebuffed.

This time around a potential bidder could come from China. Perhaps, however, a sniff of good news to come has already started to leak: Majedie Investments recently snapped up a further 91,200 shares, taking its holding in Griffin to 5.24%.

Given the deepening housing market crisis, it was not surprising to see travel-related and consumer companies get a pasting.

Thomas Cook plunged 18.65p to an all-time low of 183.6p as concern about consumer spending continued to take its toll on travel stocks.

'You have data stacking up against travel companies on the demand side, the cost side, the currency side and when you bring all these factors together the outlook may not be as positive as one might have thought a year ago,' said Blue Oar Securities analyst Derren Nathan.

Cruise operator Carnival was down 100p to 1521p, while British Airways glided 11p lower to 210¾p and Tui Travel lost 9.2p to 177.3p. Further travel sickness can be expected in 2009 as most holidays being taken now were booked in more confident times.

Of the consumer companies, chocolate manufacturer Cadbury melted 48½p to 598½p, while Reckitt Benckiser fell 129p to 2520p. Brewer Whitbread was left drowning its sorrows after its shares slid 58p to 1020p, while traders stubbed out positions in Imperial Tobacco, sending the shares 101p lower to 1775p.